Succession is key to dairy success, report finds

Having someone to take over the farm is one of the biggest factors affecting dairy farm success, according to a new report.

The report, by DairyCo and farm consultants Andersons, found that milk price was less important to farmer decisions, than sucession, when it came to considering the future.

However, cost levels were the main factor in making farmers take action in their business, whether this was exiting the industry or expanding.

After succession, the main reasons for leaving dairying were economic factors and, while age was not particularly significant, the report found farmers intending to expand had higher qualifications than those looking to exit.

The conclusions are based on data from a farmer intentions survey with a sample size of 1,900 farmers and third party data obtained from 750 telephone interviews with farmers.

Profitability

When looking at the “competitiveness” of farms in relation to size, the report found the better economically performing farms all used less labour per cow on average and less feed per litre.

“This implies that resources are used more efficiently compared to the less profitable farms of a similar size,” it said.

Richard King, head of business research at Andersons, said in some ways researchers were surprised that profitability didn’t play a bigger part (see graphic below).

“The reason low profit level appears to be a factor of both expansion and exit of the industry is that low profits drive people to make business changes,” he said.

“If you’re under pressure you need to do something. For some, that something is to quit the industry, while for others it’s to push on.”

The main influences on this decision were farmer age for those with no succession arrangements, and outlook on the future of the industry.

It takes a significant decrease in dairy farm profits to affect the rate dairy producers leave the industry, according to the report’s analysis of dairy farm profits and dairy farmer exits over the last 10 years.

Mr King said there was a positive side to the research as the average milk price was the same, regardless of size, or more importantly, profitability. The report showed the milk price received by dairy farmers dropping out of the industry and that of those that were expanding was relatively similar.

“Many farmers have seen the milk price cuts that happened last year as taking control out of the business, and it’s easy to get the impression that everything is out of control, but this shows there is lots you can do to make a success of a dairy enterprise.”

Location

Geographical changes are often hidden by aggregate data, said the report, but a significant pattern is starting to appear.

“The geographic drift to the West and North is down to two factors. These are, the ability to grow grass and the fact that the South and East have more alternatives if they give up dairy, such as good arable land.”

Subsidy payments, legislative issues and the markets supplied are likely to be influencing the rise in quota held by devolved regions, said the report. Wales, Scotland and Northern Ireland have all seen a marked increase since 1995, while production in England has fallen.